The price of Bitcoin, much like any other commodity, fluctuates considerably with time. Hence, it may never be possible to predict the amount of money you may have to part with to purchase it at a set time in the future. That is why futures trading makes much sense. Futures contracts are agreements between two parties to buy or sell an item at a specific price on a certain date. The futures market is the section of the market where traders either buy or sell “futures”. For example, if you have wheat that you know will be in high demand next year, you might want to go into the futures market now and purchase future contracts for that wheat. You will set the “price” now, but deliver it later. The futures contract is activated when both parties agree to trade something at some point in the future.
What are Bitcoin or crypto futures?
Bitcoin futures is an example of futures trading. It is specifically intended for and targeted at the future purchase of the Bitcoin cryptocurrency at an agreed-upon USD price. This form of contract negates the need for the parties to hold onto an underlying cryptocurrency.
Other than that, the contract also furnishes the parties with risk management capabilities, price discovery, utmost transparency, hedging against market uncertainties, and unhindered access to the bitcoin market. All these vouches for the secure transactions of the commodity without the unnecessary risks that come along with market fluctuations.
Futures vs. trading
Apart from futures, you can also involve yourself with the normal trading of the commodity. To appreciate these two better, you have to know the differences between the two concepts, and we now lay them bare in the comparison chart below:
When trading futures, the purchasing party must contribute a portion of the commodity’s total cost, and this sum serves as a down payment and is referred to as margin in the industry. Because of the leverage of futures, you can buy more than in stock trading, so the margin involved in **futures **trading is significantly less than that of ordinary **trading**.
The ease, or lack thereof, with which commodities can be bought or sold in the market is referred to as liquidity. **Futures **are the more liquid of the two instruments, given the presence of a greater number of buyers and sellers at any given time. Futures contracts are also traded outside of traditional market hours.
The values of all investments fluctuate dramatically over time. This has the unintended consequence of stifling investor confidence. Regardless, **futures **instruments are less volatile because their prices are primarily predetermined ahead of time. As a result, they are less vulnerable to price fluctuations than **trading **instruments.
Costs of transactions
To carry out these transactions, the parties involved must pay transaction fees or costs. When all factors are considered, the transaction costs for futures are lower than those for regular stock trading.
Trading in Bitcoin futures
Having examined the basics of Bitcoin future, it is about time to now get to know the steps or procedures. In this segment of our conversation, we will look into those steps one at a time.
Step 1: Familiarize yourself with the procedures.
Trading in Bitcoin futures is a relatively new concept, and as such, not many people are familiar with it. If you have never traded in this instrument, your first and foremost task should familiarize yourself with the procedures involved. This will prevent you from getting scammed and help you to adjust your expectations accordingly.
Step 2: Craft a trading plan
Every investment requires some smart decision-making, which is only achievable if you take the time to craft a great trading Bitcoins plan. This entails ascertaining the volume of investments, expected returns, the investment timeframe, overall goals, and how any risks may be tackled if and when they arise.
Step 3: Identify and pair with a broker
You now have to identify and pair with a broker. This firm acts as a go-between you and the Bitcoin futures, and it facilitates the purchase and sales of the futures on your behalf. Several brokers stand out with regards to reliability and past performance indicators.
Step 4: Test the system
Different brokers adopt different strategies to sell the futures. It would help if you asked for a demo before you embark on futures trading. The demos allow you to practice your trades without necessarily committing or spending any money, and it also bolsters your confidence besides deepening your mastery of the activity.
Step 5: Go for it!
With all protocols observed, you should now add funds to your account. After that, start trading futures in your live account. On the whole, trading futures requires more cash than the conventional forms of exchanges, and you have to stash more funds in your account if there is any hope of meeting the bare minimum margin requirements.
Where to trade bitcoin futures?
Deribit.com gives you the leeway to trade the Bitcoin futures with up to 100 times leverage. It is pretty fast, safe, user-friendly, and transparent. Moreover, it also guarantees a full refund warranty in case of any mishaps or issues that may compromise the transactions in any shape or form.
FTX offers quarterly and permanent futures contracts on more than 20 prominent cryptocurrencies, including BTC, ETH, BNB, and LINK. Index Futures are also listed on the exchange, allowing customers to trade various areas of the cryptocurrency market more simply.
How does trading in crypto futures work?
Trading in crypto futures mainly entails an agreement between two parties i.e., a buyer and a seller. The buyer commits to purchase a given volume of the crypto at a set price at a future date and time that they agree upon beforehand. To cement the agreement, the buyer pays a down payment that is a portion of the total sum value of the crypto he intends to purchase at the said date. This requires the use of a brokerage platform and is preceded by opening a suitable account for the job.
Benefits of futures trading
- Lower down payments: Even though you have to make a down payment, the amount you place is somewhat lower than you would in other forms of investments. That makes it less expensive to engage in.
- Higher liquidity: It is one the whole a lot easier or convenient to convert your commodities to hard cash. Due to this high liquidity, the risk of defaults when the need to redeem your dues comes is highly averted.
- Low rate of commission: The cost of engaging in futures trading is cheaper than those of alternative investment schemes. Its commissions are charged at an extremely low level and hence lead to greater profitability.
- Faster returns: With futures trading, you need not wait for too long to accrue the necessary returns. All the relevant metrics that may determine profitability are determined and set forth beforehand.
- Long-term reliability: Given that it binds the parties to the agreement to exchange the commodities at the set price, it is very reliable. It is particularly resistant to volatility and the possible losses of value that ordinarily come along.
Top 3 exchanges for bitcoin futures
We now take a look at the top 3 exchanges for Bitcoin futures
This is the world’s largest in terms of the volume of cryptocurrency traded per day. It was launched in 2017 and is registered in the Cayman Islands. Many people love it for its simplicity, relative ease of use, and a higher degree of liquidity. We recommend that you start with it if you have never traded before. Binance Futures is a trading platform that was introduced in 2019 as a product of the parent business Binance.
Binance Futures was established to allow traders to speculate on the prices of Bitcoin and other popular cryptocurrencies such as Bitcoin Cash, Ethereum, Litecoin, and Ripple. The platform also supports leverage trading up to 125x. Binance, the parent firm, is a highly respected cryptocurrency platform that lets users to purchase, sell, and stake their funds for profit.
The exchange is one of the most popular cryptocurrency platforms, with over 200 coins available for deposit and withdrawal. Binance has gotten positive feedback from the crypto community as a whole. Recently, the company cooperated with third-party organizations such as Simplex and Banxa to facilitate credit card, wire transfer, and other fiat purchases of cryptocurrencies.
eToro is a multi-asset brokerage and social trading company based in Israel, specializing in copy trading and financial services. It has offices in Australia, the United States, the United Kingdom, and Cyrus. It facilitates the trade of stocks and CFDs in addition to cryptocurrencies and Bitcoin futures. The global multi-asset trading platform, recently announced the addition of crypto assets to their platform. Customers in the United States can now purchase Bitcoin (BTC), Bitcoin Cash (BCH), Ethereum (ETH), and Litecoin through eToro (LTC).
eToro is a company that offers professional cryptocurrency trading. They offer services to corporate and institutional-level cryptocurrency traders. Etoro also provides research on cryptocurrency trends, predictions, breaking industry developments, and market prices. It also offers stock trading, so it’s not just about purchasing Bitcoin or Bitcoin Cash, but also a variety of other assets that can be traded on their platform.
Kraken goes beyond merely trading your cryptos and futures. It also aims at helping you to learn more about these items and the associated concepts. Additionally, it also facilitates the exchange and conversion of fiat currencies to cryptocurrencies and back. Due to its simplicity, it greatly favors those who have no prior experience in this trade.
Kraken futures trading is a unique service that is not commonly found on mainstream cryptocurrency exchanges. Kraken competes directly with Bitmex, the undisputed leader in margin and futures trading, however given Kraken’s great reputation, many traders prefer to use their platform. Futures trading allows traders to define an item to purchase or sell at a later date without actually possessing the digital asset. Futures contracts are commonly used by traders to hedge risk. Kraken provides traders with the ability to trade ETH, XRP, BTC, LTC, and BCH futures contracts.
We have come a long way indeed! It is our hope now that you have the pieces of information you need to start out in the trade of the commodity. How about you now identifying a suitable platform to use for your subsequent trading activities? We care for your endeavors and wish you all the best!